What is a Ninja Loan?
A NINJA loan is a description of mortgage loan that originated without the important documentation to prove that the applicant can reasonably adhere to the loan terms. It stands for “No Income, No Job or Assets.” Many of these loans were based on unsubstantiated lies from either the applicant, the mortgage broker or both. The lender that ultimately approved the loan did so without exercising due diligence to ensure that the applicant could afford the mortgage. Additionally, many of these loans were packaged and sold to other lenders. Fannie Mae and Freddie Mac may have bought some of these loans. Additionally, many of these loans packages ended up in investors hands as Collateralized Debt Obligations (CDOs). CDOs were previously viewed as relatively safe investments, since they were secured by real property. However, with many of these properties now worth less than the loan balance and record numbers of homeowners losing their homes to foreclosure, many CDOs were subject to heavy loss
NINJA is a standard acronym for a type of loan to a homeowner that requires “no income, no job and no assets.” It’s often categorized as a subprime loan, as it is typically made with little to no paperwork, generally to borrowers with less than an average credit score. Many economists pointed to these types of loans as a sign of the impending subprime meltdown and the deterioration of lending standards by banks and mortgage originators. These, as well as other types of loans were packaged (i.e., grouped together) and sold to investors as CDOs (technically, Collateralized Mortgage Obligations). The fundamental argument in favor of CDOs is that these mortgages were well diversified across different geographies, loan sizes, and income levels, such that the only way they would all default is if there was a major collapse in the mortgage market in general, due to oversupply and a widespread economic slowdown. This is precisely what happened in late 2007. 5. What are some examples of defensi
The Ninja loan is a loose acronym from No Income, No Job, No Assets, and the term also represents something of a play on words. Due to the fact that a ninja loan is likely to be defaulted upon, the borrower is described as like a ninja because he or she can so easily disappear, especially when it comes to making payments. Use of the ninja loan is highly criticized as a dangerous lending practice and can be in part held responsible for the subprime mortgage crisis of 2007 and the collapse of financial markets in 2008. In a scenario where a ninja loan is offered, and they are becoming considerably less common since the economic downturn of 2008, the borrower really has few means to pay back money owed, but on applications these loans may have “looked” okay. Truly what happened with many ninja loan was that either borrowers or brokers purposefully falsified information about jobs, income or assets. Alternately lenders merely took the word of applicants without verifying their information.
